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  READING 31: FINANCIAL REPORTING STANDARDS   FRAMEWORK   U.S. GAAP   IFRS   Similarities  Purpose of Framework The FASB framework resides lower in hierarchy. Management is not required to prioritize it if no standard is available. Management is explicitly required to prioritize the IASB framework if there is no standard or interpretation available. Both the frameworks are similar in their purpose to assist in developing and assisting standards. Objectives of financial statement It provides different objectives for business entities versus non business entities. It gives one objective for different business entities. Both frameworks have a broad focus to provide relevant information to a wide range of users. Underlying assumptions Although it recognizes, but not given much prominence is given to accrual and going concern basis. In fact going concern assumption is not well developed in particular Give importance to accrual and going concern basis Qualitative Characteristics Same characteristics but with a hierarchy · Relevance and Reliability are primary qualities. · Comparability is the secondary quality. · Understandability, treated as user-specific It has the same characteristics (understandability, comparability, relevance and reliability) but there is no such hierarchy. The characteristics are same. Approach Rules based approach in the past but moving towards adopting object oriented approach Principles based approach Financial statement elements (definition, recognition, and measurement)  Performance elements Elements are revenues, expenses, gains, losses, and comprehensive income. Revenues and Expenses Financial Position elements Asset: a future economic benefit. Term ‘Probable’ is used to define assets and liabilities elements. Asset: a future economic resource with which future economic benefits are expected ‘Probable’ is a part of the framework recognition criteria. Recognition of elements Does not discuss “Probable” for recognition criteria. Has separate criteria based upon “Relevance”  IASB framework requires that it is probable that any future economic benefit to flow to/from the entity. Measurement of elements FASB generally prohibits revaluations except for certain categories which must be carried at fair value (discussed in later topics). Revaluation is usually permitted (discussed in later topics) Measurement attributes like historical cost, current cost, settlement value, current market value, and present value are broadly consistent. READING 32: COMPONENTS AND FORMAT OF THE INCOME STATEMENT   U.S. GAAP   IFRS   Similarities  Revenue Recognition It specifies that revenue should be recognized when it is “realized or realizable and earned.”  1. There is evidence of an arrangement between buyer and seller. 2. The product has been delivered, or the service has been rendered. 3. The price is determined, or determinable. 4. The seller is reasonably The basic revenue recognition deal with the definition of “earned.” The conditions are:  1. The entity has transferred to the buyer the significant risks and rewards of ownership of the goods; 2. The entity retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; 3. The amount of revenue can  sure of collecting money. be measured reliably; 4. It is probable that the economic benefits associated with the transaction will flow to the entity; and 5. The costs incurred or to be incurred in respect of the transaction can be measured reliably. Revenue Recognition (Service) Does not deal separately The outcome of service can be estimated reliably, revenue associated with the transaction will be recognized with reference to the stage of completion of the transaction at the balance sheet date.The conditions to measure reliably are: 1. The amount of revenue can be measured reliably; 2. It is probable that the economic benefits associated with the transaction will flow to the entity; 3. The stage of completion of the transaction at the balance sheet date can be measured reliably; and 4. The costs incurred for the transaction and the costs to complete the transaction can be measured reliably. Long term Contracts Under U.S. GAAP, a different method is used when the outcome cannot be measured If the outcome of the contract cannot be measured reliably, then revenue is only reported IFRS provide that when the outcome of a construction contract can be measured  reliably, termed the “completed contract method.” Under the completed contract method, the company does not report any revenue until the contract is finished. Under U.S. GAAP, the completed contract method is also appropriate when the contract is not a long-term contract. to the extent of contract costs incurred (if it is probable the costs will be recovered). Costs are expensed in the period incurred. Under this method, no profit would be reported until completion of the contract. reliably, revenue and expenses should be recognized in reference to the stage of completion. U.S. GAAP has a similar requirement. Under both IFRS and U.S. GAAP, if a loss is expected on the contract, the loss is reported immediately, not upon completion of the contract, regardless of the method used. Barter U.S. GAAP states that revenue can be recognized at fair value only if a company has historically received cash payments for such services and can thus use this historical experience as a basis for determining fair value. Under IFRS, revenue from barter transactions must be measured based on the fair value of revenue from similar non barter transactions with unrelated parties (parties other than the barter partner) Gross Vs. Net Reporting To report gross revenues, the following criteria are relevant: 1. The company is the primary obligor under the contract, 2. bears inventory risk and credit risk, 3. can choose its supplier, and 4. has reasonable latitude to establish price. If these criteria are not met, the company should report revenues net Depreciation Amortization In most cases IFRS and U.S. GAAP, amortizable intangible assets are amortized using the straight-line method with no residual value. Goodwill and intangible assets with

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Jul 23, 2017


Jul 23, 2017
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